James Stewart Article on Hedge Funds

This article is worth a serious look, particularly if you are sitting on the board of an endowment committee.

Occam’s Razor and Investing

Establish Basic Principles of Investing

What does Occam’s Razor* principle have to do with investing? Furthermore, what is Occam’s Razor?  The principle states that “Entities should not be multiplied unnecessarily.” The principle is attributed to the 14th century Franciscan friar, William of Ockham.  Isaac Newton stated the Occam’s Razor another way with this rule. “We are to admit no more causes of natural things than such as are both true and sufficient to explain their appearances.”  Put another way, we make every attempt to shave away unnecessary information and this applies to investing. To quote Einstein, “Everything should be made as simple as possible, but not simpler.” The investment style of ITA Wealth Management is to make investing as simple as possible, hence Occam’s Razor.

Here at ITA Wealth Management we have a few simple goals and principles.

  • Save as much as you can as early as you can. The operative word is “early.”
  • Pay attention to portfolio risk.
  • Use available research when developing a portfolio plan.
  • Use index vehicles as the foundation for portfolio development.
  • Give asset allocation the importance it merits – and no more.
  • Accept the mantel of humility if you think you can outperform the market by picking individual stocks.
  • Avoid losing money.
  • Seek a return that is above the return of an appropriate benchmark.
  • Develop a customized benchmark for each portfolio.
  • Strive for a high Sortino or ITA Retirement ratio.
  • Reduce fees and expenses.
  • Rebalance the assets when appropriate.
  • Learn how to monitor a portfolio accurately.

If one were to take the Occam’s Razor principle to its extreme, one might end up investing in two to four broad index funds. To go back to the Einstein quote, such a move would keep the portfolio “as simple as possible,” but one would be forgetting the final admonition – “but not simpler.”

The contention of ITA Wealth Management is that building a portfolio around ten to sixteen ETFs that cover all the primary asset classes fulfills the Einstein quote and the Occam Razor principle. These principles are applied to the eleven portfolios tracked here at ITA Wealth Management.  Platinum subscribers have access to all details of eight of the 11 portfolios.

* Information pulled off the Internet so as to give credit where it is due.